Jims Discount Warehouse sells three-year extended warrantees on its televisions and other electronics. As of...
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Accounting
Jims Discount Warehouse sells three-year extended warrantees on its televisions and other electronics. As of December 31, 2019, Jims estimates expected cash flows associated with electronics sold to date as follows for the next three years:
Cash Flow Estimate
X
Probability Assessment
=
Expected Cash Flow
2020
$15,000
0.25
$3,750
20,000
0.40
8,000
27,000
0.35
9,450
Total
21,200
2021
20,000
.35
7,000
22,500
.35
7,875
30,000
.30
9,000
23,875
2022
30,000
.25
7,500
35,000
.25
8,750
40,000
.50
20,000
36,250
Assume the cash flows will occur at the end of the respective years and that the pure rate of interest, plus the expected inflation rate of annual interest equals 4.1%. Use the expected cash flow technique to value the warranty obligation for Jims Discount Warehouse.
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